Sunday, July 10, 2011

Exemption from Expanded Withholding Tax

RR 14-2000 increase the coverage of withholding tax agents required to withhold 1% on goods and 2% on services from top 10,000 to top 20,000 private corporations.  For someone who was has been notified as such, it is nothing but a headache.  These corporations serves as agents of government to remit taxes nevertheless, during investigation, examiners haphazardly make a table assessment for non-withholding and disallowance of items not subjected to withholding tax.  During an audit, examiners normally just pick up the figures from your abstract or financial statements, making an assumption that all are subject to withholding tax, shifting the burden of proof to the taxpayer that it is not so.

It is important to be informed that there are income payments exempt from withholding tax. Sec 2.57.5 of RR 2-98 lists the income payments exempted from withholding, thus withholding of creditable withholding tax prescribed in RR2-98 shall not apply to income payments made to the following:

A.) National government and its instrumentalities, including provincial, city or municipal governments;
B.) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:
(1) sales of real property by a corporation registered with HLURB or HUDCC...
(2) Corporations registered with the Board of Investments (BOI) and enjoying exemption from the income tax (income tax holiday) provided by RA 7916 and the Omnibus Investment Code of 1987.
(3) Corporations which are exempt from income tax under Sec. 30 of NIRC to wit, GSIS, SSS, PHIC, PCSO, PAGCOR....

Other common issues assessed by examiners which are exempt from withholding tax:

  • Income payment to General Professional Partnerships   
Chapter III, SEC. 26 of NIRC prescribes the Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.

Income payment to International Carrier

Sec. 28 (A)(3)(b)
An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings'


  1. hi!
    I have a question. we actually rented some public jeepneys for installation of toploads and those jeepneys are under PUJ Associations so the payment will be under the name of the assoc. which has TIN but is NONVAT. We were advised by our external accountant that since our company is included on the top 20,000 taxpaying companies, we have the right to withhold 5% from the payment since it's for rental. Now our problem is, the PUJ association is claiming that we shouldn't deduct any amount since they are a NONVAT cooperative. We have already explained and supported the deductions with Certificate of Creditable Tax Withheld At Source (BIR Form 2307). I'd like to know where we stand on this issue. I appreciate your help. thanks!

  2. This case might be subjected to further legal basis.
    Since cooperatives are exempted to normal tax on regular corporation, creditable withholding tax is of no use, thus payments shall be exempted to withholding. Just secure a copy of their certificate of tax exemption.
    Furthermore, VAT issue is different from withholding tax.